Psychology Give Yourself a Trading Edge Through the Use of Anchors

In college, I was on the track team, and I distinctly remember a very powerful experience during a conference track meet. It was the end of a long day, the last call for the mile relay, with a slight chill in the spring air and overcast skies. In the stands, a radio played a very loud rendition of "Ain't No Stoppin' Us Now." We were neck and neck for winning the conference meet with a rival. You can imagine how motivated we were to bring our "A" game for the win.

The mile relay was the final meet event and our last chance. My teammate, Steve, and I were making our way to the starting line when the coach told us that Jim, our best quarter miler, was sick and the order of the relay would be changed. Steve, a strong competitor, was picked to run last. He usually ran first. He was the second fastest quarter miler on our team, and had already won four gold medals. The coach switched the order, in case Jim came in behind, so we would have three guys to shorten the gap. I was in the 3rd spot and Jason was in the 2nd. There were eight teams in this final's heat, with all the best teams running. The entire team approached the starting line, and the leadoff runner then went to the blocks in his assigned lane. Once the sweats were off and the blocks adjusted, the starter yelled, "ON YOUR MARK!" as a hush settled across the crowd. "GET SET!" The runners raised to a poised position as tension filled the air like a dense fog. "CRACK!" The starter gun pierced the sky and the runners exploded from their blocks. Jim ran his heart out, but his illness took its toll and he came in 4th after the first leg. Jason ran an exceptionally strong 2nd leg, and came in 3rd. When I got the baton, I was about 10 yards from number two and another 15 yards from the lead runner. I came in 15 yards behind the lead, but I was in the 2nd position and not 3rd. It was now up to Steve. He was up against the conference champ in the quarter mile. Steve took the baton and shot off like a canon, catching his rival within the first 120 yards. He then did something unconventional; he passed the leader on the curve, expending more energy. The leader, knowing this, let him pass and ran in his footsteps, slightly behind until they came out of the last curve and into the final straight. The other guy pulled up alongside. They were stride for stride. Steve had given just about all he had, but remembered everything coach taught him about the finish and just as the tape was approaching, Steve flung himself forward to edge out his rival and win the race.

Steve later told me that he could still hear that song, "Ain't No Stoppin' Us Now," in his mind. That excited and euphoric emotional state of winning was "anchored" for him by that song. From that moment on, that song not only triggered his memory of the events of that day, but also the emotional state associated with that event. As a result, he will "re-experience" what he thought, emotionally felt, and did at that event every time he hears that song. This is how anchors work. An anchor, if linked to a feeling state correctly, can be designed to trigger a strong, confident and empowered state to use for peak performance trading. In order to perform to your capacity, you must manage your "emotional state." This is of critical importance, because emotions can and do gravely impact upon your ability to maintain focus and optimal performance during the trade. Any glitch in your emotional state can lead to rule violations and losses. If you feel irritation, guilt, anger, frustration, doubt, fear or greed, you can become distracted and fragmented in your effort, which puts you on the road to self-sabotage. In contrast, feelings of ease, confidence, acceptance, and relaxation, are states more likely to lead to giving your best.

Different states lend themselves to different circumstances.

Some of these states are:

* Confidence
* Trust
* Amused self-assurance
* Curious inquisitiveness
* Relaxed intensity
* Controlled excitement

These are but a few descriptions of countless emotional states that can be as unique as each individual. When you prepare to do anything important, like enter the market, there are emotional states that are rockin' where you feel totally motivated, confident and aligned with your "A" game; and there are others that are full of frustration, confusion and out-of-control behavior. It's important to recognize and choose which states work best for you in those situations where your "A" game is the only acceptable option. And, once you have the state you want, the challenge is to hold on to it through the barrage of circumstances that are out of your control but may trigger a cascade of distorted judgment and leave you seduced by illusions, like the news event that prompts a market reaction against your position, or the economic report that causes the market to surge erratically both up and down. So it is vitally important that when these circumstances present themselves, you stand firm in thought and emotional states that are directed toward consistent results-oriented behavior. Successful traders know how to anchor their emotions and their self-confidence during times of turbulence.

An anchor is a stimulus and can activate a memory that triggers a cascade of internal responses that reflexively alter your state of mind.

Anything can be an anchor. Also, the process of anchoring works in both directions to either help or hinder your performance. The ability to use anchors enables you to:

* Access internal resources like feeling states
* Replace unwanted feelings and thoughts with desirable ones
* Manage emotions
* Remain focused when going through periods of erratic change
* Create an internal experience you prefer, regardless of the environmental circumstances

Anchors act as triggers and each of us already has a wealth of them, whether positive or negative.

Consider the following examples of "natural" anchors:

* People close to us
* Memories of seminal events in our lives
* A taste of an extraordinary meal, fine wine or other thing
* A picture or postcard
* An astonishing view
* A favorite piece of music
* A special perfume

Making Anchors Work for You

Events (anything that gets your attention) flood your day and each event carries with it choice points. An event also has three inherent questions that you both ask and answer in an unconscious fashion. They are: What is it? What does it mean? And, what am I going to do about it? Furthermore, it is not the neutral event, it is the meaning you ascribe to the event that conjures an emotion which ultimately drives your behavior and then leads to results. It boils down to what you are choosing to think about. You can begin to take control by using anchors hand-in-hand with results-oriented thinking. You can decide how you want to feel, given certain events and situations. For example:

* When you prepare to trade
* When analyzing a setup
* When entering the market
* When deciding what position size you will initiate
* When the price action breathes
* When something happens unexpectedly
* When the technology fails
* When you are about to exit the market

Anchoring a Resourceful State

The process of anchoring involves linking a specific sound, sight, or touch with an experience. The linking process subsequently enables you to use the anchor to re-access that same experience when it can benefit you in another context. For those among you who are ready, here is a procedure for anchoring a power state:

1. Make yourself comfortable in a distraction free space.

2. Identify a powerful state or resource (a feeling) you have experienced in the past and that you'd like to use whenever you choose, like the feeling after a particularly well-played winning trade.

3. Choose an anchor you can use at anytime and anywhere to activate that feeling. It must be precise and easy to use. For example, you could make a fist with your non-dominant hand, or rub the back of your head with either hand.

4. Now, recall the memory or experience in full sensory detail where the feeling of empowerment, confidence, relaxation, centeredness, curiosity, etc., was strongest for you. When you have experienced the state in an associated way (meaning you experience the sensory details through your eyes, ears, and touch) just before you feel it to the greatest degree, link the chosen anchor. Hold this for about 7 to 15 seconds, then release the touch and clap your hands or close and open your eyes in order to "break state."

5. You have now linked an anchor with this touch for the feelings you want use. You will want to repeat this process several times until you know there is a strong connection between the touch and the feeling.

6. To test the anchor, think of something that has a negative feeling state connected to it and, as you do, rub on the back of your neck in precisely the same manner as when linking the touch and the feeling. This is called "firing the anchor." If done correctly, you will re-experience the anchored event with all of the attending sensory-rich memory state. If this does not occur, keep practicing.

This is especially effective for trading where you have noticed a lot of fear and greed, which almost always goes along with doing something boneheaded and in violation of your rules. You'll also want to use this powerful tool along with your journal to identify the times when you have noticed swells of unproductive emotions and feeling states that invariably cause draw downs in your account. Self-discipline is supported not by hard-nosed will, but by the passion of your emotions as you tie the intensity of positive emotions to the behaviors (high probability trading strategies and keeping commitments) that you know are supportive of consistent successful results.
Last edited by a moderator: